Why the cost of your insurance is soaring
Insurance companies are squeezing more money out of customers and wriggling out of paying claims as they desperately try to bolster their profits.
'My premiums rose 50%': Read Georgina King-Evans' story below
As figures released by the AA last week suggest the average car insurance policy could break the £1,000 barrier within a year, Money Mail has uncovered five key areas where policyholders are being tripped up.
• Soaring premiums — motorists were hit by a record 40% hike in premiums last year, with the average annual comprehensive policy costing £892, according to the AA. Home insurance shot up, with contents cover rising 12% and buildings cover by 14%.
• Sneaky fees — some charge a £25 fee when a policy is renewed and £55 to change an address.
• Higher excesses — this is the amount you'll be expected to contribute before the insurer steps in. Many motor policies now include voluntary excesses on top of compulsory ones, forcing policyholders to pay the first £500 or more.
• Maddening exclusions — some travel insurance policies, for instance, won't cover any pre-existing medical conditions.
• Lower limits on payouts — pet insurance policies, in particular, can refuse to pay up for long-term conditions after a year or once a payout limit has been reached.
Insurers are taking advantage of a fundamental change in the way we buy insurance. Shopping online for the cheapest deal through comparison websites has empowered customers.
But it allows insurers to offer eye-catching headline deals to reel customers in, before hitting them with extra charges and baffling small print.
Consumer groups argue there is no excuse for some of the sharp tactics deployed by insurers.
James Daley, editor of Which? Money, says: 'Some of these add-on fees are simply inexcusable. As people are increasingly buying their insurance online, firms are pushing down their headline premiums to get people through the door and then clawing back the money by charging at the back end.
'For instance, changing address takes a few seconds on the phone. It's ridiculous to charge £50 for that.'
Motor insurance
Drivers face an eye-watering array of charges for simple administration on policies. They can be charged up to £55 to change the address on their policy and up to £120 to cancel it.
In 2004, only 17% of companies charged an adjustment fee to change policy details, according to researchers Defaqto. Today, 67% do.
Supermarket giant Asda charges a hefty £75 cancellation fee and a £25 'adjustment' fee on its Online Exclusive Car Insurance policy. These adjustment fees cover anything from changing your car to something as straightforward as altering your address.
If you arrange to pay your premium in instalments, it charges another £27.50.
American Express even charges £25 to renew its Basic and Prestige policies. A spokesman for American Express says: 'This is a standard fee that relates to the administrative costs associated with renewing the policy.'
Coverbox, which offers pay-as-you-drive insurance, charges a £120 cancellation fee. Specialist young driver insurer i-Kube charges £55 a time for either renewing, cancelling or adjusting a policy.
Over-50s specialist Saga charges £50 to cancel its Private motor insurance policy. AA charges a £25 adjustment fee and £50 cancellation fee. Customers who cancel their insurance early can be left out of pocket even if they haven't made a claim. Many companies will refund only a percentage of a customer's premiums or keep it all.
Asda, for example, pockets all the premiums if you cancel after the 14-day 'cooling-off period'. A spokesman for Asda says: 'Our aim is to charge our customers the lowest possible premium on their insurance.'
These charges are often buried in the small print. Santander, for example, mentions its £15 cancellation fee only on page 25 of its 32-page policy document. Mike Powell, general insurance analyst for Defaqto, says: 'It is better for people to be aware of all potential charges up front than be surprised by them down the line when they're already committed to the policy.' Home insurance
Homeowners are also facing record premiums, a raft of add-on charges and more exclusions.
The typical cost of buildings cover hit £147 a year and premiums for contents cover rose to an average £76. Insurers say this is driven by climate change and a rise in the number — and cost — of claims caused by high winds and flooding.
'Flooding is the main catastrophic risk in the UK and we know that climate change will bring increased flood risk,' says Nick Starling, director of general insurance and health at trade body the Association of British Insurers (ABI).
Number-crunchers at the ABI claim if temperatures rise by just 2c, annual insurance losses will go up by £47m, pushing up the price of cover by 16%.
Meanwhile, insurers are squeezing money out of customers wherever they can.
According to research from Which?, American Express will charge you £52 to set up a policy, £25 to change your address and £15 to get a copy of your paperwork.
It also charges £50 to cancel your policy and if you want to renew it. Again these costs are on the rise — little over one in five had them in 2007, but by 2010 a third of policies did.
Customers with Esure will have to pay a £17.50 adjustment fee to change their policy details, the same again to get a copy of their paperwork, and a hefty £55 cancellation fee. AA Insurance charges a £25 adjustment fee, £25 for duplicate documents and £50 for cancellation. Admiral charges £20 for adjustment and duplicate documents and £60 for cancellation.
Homeowners are also being asked to pay a higher portion of any claim. Insurance companies have been bumping up the excess — the amount you have to pay when you claim — on buildings and contents policies.
In 2004, just two in ten policies charged a standard excess of £100, according to Defaqto. Today, the number charging this has doubled, and it's exactly the same story with contents insurance.
Travel insurance
The Icelandic volcanic ash cloud that shut UK airspace for six days last year cost insurers £60m. There were also strikes and bad weather in December which shut airports again.
Predictably, these costs are being passed on to travellers — with premiums estimated to have risen by 12% last year. And insurers are adding exclusions to give them more excuses to avoid paying up.
Today, often only the healthiest travellers will get the headline, low-cost deals. Research by comparison website Moneysupermarket.com suggested that firms such as Flexicover Direct, which consistently appears among the cheapest policies, will not cover any kind of pre-existing condition at all.
Bob Atkinson, travel expert at Moneysupermarket.com, says: 'Firms have been upping their premiums and changing their policies to make it more difficult to claim or make payouts less generous.
'This is particularly true of the cheaper policies where insurance firms have suffered because people are claiming for all sorts of things.'
Pet cover
Pet insurance premiums rose by 28% between 2007 and 2009 as vets hiked their costs. The average cost of a claim today is £425.
Now, insurers are selling budget pet insurance to cash-strapped customers. But some policies are so restrictive they are rendered useless if your pet develops a long-term ailment.
Some of the cheapest policies stop paying out on a condition 12 months after it starts or when a certain amount in vet bills has been paid out — whichever comes first. After this, the owner has to foot the bill.
For instance, a five-year-old labrador from Bath will cost £25.50 a month to insure under Petplan's more expensive covered for Life policy. This includes £4,000 worth of fees per year and provides cover throughout the animal's life.
The firm's low cost Pet Value policy is £17.99 a month, but if the animal develops an illness, it will be covered for a maximum of only 12 months or until the £3,000 vet bills limit is reached.
Some firms provide only limited cover for an ailment. These include More Than, Direct Line, Asda and Sainsbury's Finance.
Insurance companies say vet bills rarely exceed the limits they set. A spokesman for Direct Line says: 'If we were to renew the cover limit every year, the policies would be much more expensive and a small number of customers only would see the benefit.'
A hidden tax rise
One little-known change also causing your premiums to sneak up is the rise in insurance premium tax for car, home and travel policies.
Many people will not be aware this tax even exists. But from January it rose from 5% to 6%.
Those buying travel insurance are now paying 20% tax instead of 17.5%, as insurance premium tax is charged at the same level as VAT. How to beat insurers' (and others') sneaky charges: click here.
'I was left to pay the vet's bills'
Shop owner Emma Nissim regrets buying a limited insurance policy with Petlog — now part of Crufts — for her seven-year-old golden labrador Alfie.She had paid into the policy since she got him as a puppy and rarely made a claim.
But last year, Alfie developed arthritis in his knees and hips.
The policy covered the £416.90 in costs incurred for the X-ray and other tests used to diagnose the problem. But Ms Nissim, 31, pictured left with Alfie, had to pay an excess of almost £100.
Her premiums also rocketed from £18.95 per month to £43 at the end of last year and she was told Alfie would no longer be covered once she had reached the £2,500 limit for each condition.
Ms Nissim, from South-East London, went to insurance broker Vet Insurance Protector, which recommended a VetsMediCover plan.
This costs £18 a month. Unfortunately, it won't cover Alfie's arthritis, as it's a pre-existing condition. But it will provide lifetime cover for any other illnesses he might develop.
'It's infuriating,' says Ms Nissim. 'It didn't occur to me when I took out the policy that I'd end up having to pay Alfie's vet bills.'
Car policy rockets by more than 50%
Georgina King-Evans, 24, and her fiance Jonathan Washington, 29, saw premiums on their joint motor insurance policy jump from £450 to £680 when they renewed it last month.The couple, from Rugby, have been forced to pay monthly because they cannot afford to pay all in one go, adding another £50 in interest repayments.
They shopped for the best deal on moneysupermarket.com before settling on Marks & Spencer. But some policies were quoting more than £1,000.
Ms King-Evans (pictured) passed her driving test in February last year and assumed that with a year's careful driving under her belt — and Jonathan's ten-year unblemished driving record — their premiums would go down.
Ms King-Evans, an analyst for a telecommunications company, says: 'We have tried hard to drive sensibly in order to keep our insurance premiums down. 'There doesn't seem to be any reward for being a good driver.
'It's hugely annoying we are paying for fraudsters and irresponsible drivers who cause crashes.'
And here's what you can do to beat the price rises...
Shop around. By all means use comparison websites — but don't automatically go for the cheapest deal.
Remember to look at insurers such as Direct Line, which are not on comparison sites.
Check the small print for information on the excess and any add-on fees, as well as details of what you are and aren't covered for. Buying a cheap policy can be a false economy if you are not covered for any claim or have to pay a £25 fee to change your address.
Alternatively, use an insurance broker or independent adviser, who should find the best policy for your needs and will point out significant elements of the policy.
You can compare insurance policies at www.defaqto.com/star-ratings. This gives a star rating between one and five to each policy, with five being the most comprehensive. There are a number of things you can do to reduce your motor insurance premiums, such as buying a less powerful car, parking it in a garage and installing an alarm.
The Mini City, Citroen CV6 and Fiat Panda are among the cheapest to insure, while the BMW 645 Convertible and Audi A6 Quattro are at the other end of the spectrum. Go to www.thatcham.org for more information.
Don't be tempted to modify your car with flashy alloys or racing pedals. Modifications will set alarm bells ringing for an insurer and could lead to higher premiums.
You can also cut your home insurance bills by making sure your house is as secure as possible. This includes fitting burglar and smoke alarms and installing a safe.
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